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We find petitioners' expert's valuation
unpersuasive. First, the results of Mr. Conklin's
analysis fluctuate wildly with minor changes in basic
assumptions. For example, minor changes in what
Mr. Conklin terms "Incremental Working Capital" cause
drastic changes in the overall value of the stock under
his analysis. "Incremental Working Capital" is measured
as a percentage of the increase in sales over the prior
year. Throughout his analysis, Mr. Conklin assumed that
SWI would require working capital each year equal to 7
percent of the increase in sales over the previous year.
However, a change in this figure of just 1 percentage
point to 6 percent, leaving all of Mr. Conklin's other
assumptions unchanged and applying a 7-percent growth
rate, causes the price per share to increase, by our
calculation, to $1,748.17. This is troubling in light of
the fact that Mr. Conklin agreed on cross-examination
that 6 percent was a reasonable figure for incremental
working capital. Given the importance of incremental
working capital to Mr. Conklin's valuation model, and the
volatile effect this figure has on his overall valuation,
we find troubling Mr. Conklin's concession as to the
reasonableness of using 6 percent. Moreover, we note
that information contained in Mr. Conklin's report
suggests that SWI's incremental working capital had
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